# How does borrowed money affect GDP?

Suppose that a household borrows from the bank with %2 interest rate and uses the money for paying rent;

1. Is this a Consumption?
2. May households borrow money from the bank for consumption, not investment purposes? (I haven't seen such thing in a circular flow graph, that's why I'm asking)
3. Is factor payments are being paid to another household who lends his savings to the bank?
4. Is this payment of saving is counted as lender's income?
5. What kind of approach of GDP would borrowing money from the bank for paying the rent, and interest income earned by another househould?
• Whether or not something is consumption is not concerned with how it is financed. – Jamzy Dec 20 '16 at 5:26

If the household in your example borrowed $1000 to spend on rent at 2% interest and then paid back that $1020 next year it would be a $1020 net gain for GDP with $1000 going to the landlord's income and $20 going to the bank's income for their service of lending out money. If the household defaulted on its debt then the bank would report a loss of $1000 on their income which would cancel out the \$1000 gain on the part of the landlord.